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Note 10 - Income Taxes
 12 Months Ended
Jan. 02, 2022
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

NOTE 10-INCOME TAXES

 

The following table presents the U.S. and foreign components of consolidated loss before income taxes and the provision for (benefit from) income taxes (in thousands):

 

  

Fiscal Years

 
  

2021

  

2020

  

2019

 

Loss before income taxes:

            

U.S.

 $(6,461) $(11,170) $(15,813)

Foreign

  (36)  70   289 

Loss before income taxes

 $(6,497) $(11,100) $(15,524)

Provision for (benefit from) income taxes:

            

Current:

            

Federal

 $—  $—  $— 

State

  3   3   3 

Foreign

  22   39   108 

Subtotal

  25   42   111 

Deferred:

            

Federal

  —   —   (141)

State

  —   —   (44)

Foreign

  94   9   (6)

Subtotal

  94   9   (191)

Provision for (benefit from) income taxes

 $119  $51  $(80)

 

The following table presents the rate reconciliation between income tax provisions at the U.S. federal statutory rate and the effective rate reflected in the consolidated statements of operations (in thousands):

 

  

Fiscal Years

 
  

2021

  

2020

  

2019

 

Income tax (benefit) at statutory rate

 $(1,364) $(2,331) $(3,260)

State taxes

  3   3   (42)

Foreign taxes

  124   34   41 

Stock compensation and other permanent differences

  (155)  171   245 

PPP Loan Forgiveness

  (250)  —   — 

R&D Tax Credits

  (230)  (261)  (286)

Expired tax attributes

  3,304   208   1,085 

Future benefit of deferred tax assets not recognized

  (1,312)  2,227   2,277 

Other

  —   —   (140)

Provision for (benefit from) income taxes

 $119  $51  $(80)

 

 

Based on the available objective evidence, management believes it is more likely than not that the U.S. net deferred tax assets will not be fully realizable. Accordingly, the Company has provided a full valuation allowance against its U.S. federal and state deferred tax assets at January 2, 2022. Any future release of the valuation allowance may be recorded as a tax benefit increasing net income. The Company believes it is more likely than not it will be able to realize its foreign deferred tax assets. Deferred tax balances are comprised of the following (in thousands):

 

  

January 2,

  

January 3,

 
  

2022

  

2021

 

Deferred tax assets:

        

Net operating losses

 $45,197  $43,703 

Accruals and reserves

  1,347   1,239 

Credits carryforward

  5,660   5,860 

Depreciation and amortization

  7,820   9,240 

Stock-based compensation

  403   485 

Operating lease liability

  409   469 

Gross deferred tax assets

  60,836   60,996 

Deferred tax liabilities:

        

Right-of-use asset

  (400)  (458)

Withholding tax on future distribution

  (125)  — 

Gross deferred tax assets

  (525)  (458)

Net deferred tax assets

  60,311   60,538 

Valuation allowance

  (60,353)  (60,486)

Total deferred tax liability (assets)

 $(42) $52 

 

As of January 2, 2022, the Company had net operating loss carryforwards of approximately $183.9million for federal and $94.4 million for state income tax purposes. If not utilized, the federal net operating loss for years beginning before January 1, 2018 of  $128.6 million will expire beginning in fiscal year 2022 through 2037, and federal net operating losses beginning after January 1, 2018 of $55.3 million will be carried forward indefinitely (subject to certain limitations). If not utilized, the state net operating losses will expire beginning in fiscal year 2028 through 2041.

 

The Company has research credit carryforwards of approximately $3.7 million for federal and $4.7 million for state income tax purposes as of January 2, 2022. If not utilized, the federal carryforwards will expire in various amounts beginning in fiscal  year 2023. The California credit can be carried forward indefinitely.

 

Events which may restrict utilization of a company’s net operating loss and credit carryforwards include, but are not limited to, certain ownership change limitations as defined in Internal Revenue Code Section 382 and similar state provisions. In the event the Company has had a change of ownership, utilization of carryforwards could be restricted to an annual limitation. The annual limitation may result in the expiration of net operating loss carryforwards and credit carryforwards before utilization.

 

The Company has not undertaken a study to determine if its net operating losses are limited. In the event the Company previously experienced an ownership change, or should experience an ownership change in the future, the amount of net operating losses and research and development credit carryovers available in any taxable year could be limited and may expire unutilized.

 

Foreign withholding taxes associated with the repatriation of earnings of foreign subsidiaries were not provided for on the undistributed earnings of certain foreign subsidiaries as of the end of fiscal 2021. The Company intends to reinvest these earnings indefinitely in the Company’s foreign subsidiaries. The Company believes that future domestic cash generation will be sufficient to meet future domestic cash needs. The Company has not recorded a deferred tax liability on the undistributed earnings of non-U.S. subsidiaries. The foreign withholding taxes would not have a material impact on the Company’s financial position and results of operation.

 

Uncertain Tax Positions

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

 

  

January 2,

  

January 3,

  

December 29,

 
  

2022

  

2021

  

2019

 

Beginning balance of unrecognized tax benefits

 $2,176  $2,117  $2,161 

Additions (subtractions) for tax positions related to the prior year

  (7)  38   (46)

Additions for tax positions related to the current year

  128   114   88 

Lapse of statutes of limitations

  (178)  (93)  (86)

Ending balance of unrecognized tax benefits

 $2,118  $2,176  $2,117 

 

Out of $2.1 million of unrecognized tax benefits, there are no unrecognized tax benefits that would result in a change in the Company's effective tax rate if recognized in future years. The accrued interest and penalties related to uncertain tax positions was not significant for January 2, 2022, January 3, 2021 and December 29, 2019.

 

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act includes provisions relating to loan programs for small businesses ("Paycheck Protection Program" or "PPP"), refundable payroll tax credits,

net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. The Company applied for and received a

PPP loan in Q2 of fiscal year ended 2020 in the amount of $1.2 million which was utilized on qualified business expenses under the guidance of PPP. The Company applied for loan forgiveness and the application was approved by the lender on January 26,

2021.

 

The Company is not currently under tax examination in the U.S. and the Company’s historical net operating loss and credit carryforwards may be adjusted by the Internal Revenue Service, and other tax authorities until the statute closes on the year in which such tax attributes are utilized. The Company estimates that its unrecognized tax benefits will not change significantly within the next twelve months.

 

The Company is subject to U.S. federal income tax as well as income taxes in many U.S. states and foreign jurisdictions in which the Company operates. The U.S. tax years from 1998 forward remain effectively open to examination due to the carryover of unused net operating losses and tax credits.